2018 (1) TMI 1512 - AT - Income Tax

Disallowance u/s.14A read with Rule 8D(2)(iii) - non recording of reasons by AO - HELD THAT - We find that the AO has not recorded its satisfaction by giving specific reasons as to the correctness of the claim of the assessee having regard to the accounts of the assessee. AO has not recorded its satisfaction by giving specific reasons as to the correctness of the claim of the assessee, therefore, we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO with a direction to verify regarding the claim of assessee that no expenses were incurred for earning the exempt income, having regard to the accounts of the assessee. The AO shall also verify any other claim if so raised by the assessee, and thereafter pass afresh order of assessment. - Appeal of assessee allowed for statistical purposes.

Summary

Issues:
Challenge to disallowance under Section 14A of the Income Tax Act.

Detailed Analysis:

Issue 1: Disallowance under Section 14A
The appeal challenges the disallowance of ?22,37,456 under Section 14A of the Income Tax Act. The appellant argued that no expenditure was incurred for earning exempt income, specifically dividend income claimed under Section 10(34) of the Act. The appellant contended that the AO did not record satisfaction regarding the correctness of the claim. The appellant cited various judgments to support the argument, emphasizing the need for the AO to verify the claim before making any disallowance under Rule 8D. The Tribunal referred to the provisions of Section 14A(2) and noted that the AO must be satisfied with the correctness of the claim before making any disallowance. The Tribunal also cited a Mumbai Tribunal case emphasizing the requirement for the AO to record satisfaction before disallowing any expenditure. The Tribunal found that the AO did not record specific reasons regarding the correctness of the claim, leading to the decision to remit the matter back to the AO for re-examination. The Tribunal directed the AO to verify the claim of no expenses incurred for earning exempt income and provide the appellant with a hearing opportunity before passing a fresh assessment order.

Issue 2: Grounds 1.2, 2 & 3
Since the Tribunal decided on the first ground and remitted the matter back to the AO, the subsequent grounds became infructuous.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for the AO to reexamine the claim of the appellant regarding the disallowance under Section 14A. The decision to remit the matter back to the AO was made to ensure proper verification and assessment in accordance with the law, without reflecting any opinion on the merits of the dispute.